Celebrating Halloween requires tricks, treats, pumpkins, costumes and all
that, but most of all you need ghosts and ghouls and the undead. So sit there
by the campfire toasting your marshmallows while I tell you a real horror
story. It's got evil spirits, unspeakable grave robbing, people and companies
coming back from the dead repeatedly, and a few treats to get you through
the scary bits. Got your cider and "s'mores" handy? Blanket wrapped around
your little toes? Good.

This is a story about a publicly traded real estate partnership selling for
$22 3/4 a unit. You could have bought it two years ago for only $10 1/8 a
unit. Take a look at its Lazarus-like chart. If that's not coming back from
the dead, I don't know what is.

The "vampire" in this story is a man named Gene Phillips. Does that scare
you? Well it might if you knew that in 1973 Mr. Phillips filed a $30 million
bankruptcy -- the largest real estate Chapter 11 in South Carolina history.
Did he die a lingering financial death? No. In fact, Phillips came back from
his financial limbo, and in the early 80s he went to work for one of his
former creditors and rather cleverly snatched that company away from his
boss. Phillips was alive again in that new corporate body, so next he bought
an almost-dead real estate investment trust (REIT) from the financial graveyard.
With a nose for blood that Vlad the Impaler would envy, he took over the
moribund San Jacinto Savings & Loan and pumped the bank and the REIT
full of new blood. Mostly he pumped them full of funds he raised from Drexel
Burnham.

He called this stitched-together Frankenstein entity Southmark. It had its
own bank, development entities, partnerships, management companies, and REITs.
Then came an even bigger mass of carnage and financial ruin. The Feds took
over the S&L, and by 1988 Southmark got into the biggest real estate
bankruptcy in U.S. history -- $9 billion in assets all tangled into one enormous
financial collapse. This collapse was so huge and so dramatic that there's
a rumor Andrew Lloyd Webber might use it for a second act closer. So Mr.
Phillips' financial career was finally, really, truly, absolutely, unequivocally
dead now, right?

Wrong.

Just when you might think they were tossing the dirt on his pine box forever,
the lid popped off the coffin and out he clawed again. He even sued the Feds
for closing the bank. As part of the settlement he was even left with a pile
of the bank's best assets. He kept control of several of the REITs and
partnerships, and he rolled a bunch of smaller partnerships up into one big
one called... you guessed it, National Realty LP!

The gist of the Phillips trick was that all of the former Southmark companies
(including NLP) were paying out huge fees to the Phillips group so there
was little left for dividends. The price of the shares was very depressed
by this, so Phillips and his associates could buy up huge blocks of the stock
for far less than the underlying properties they owned were worth. The Dec.
31, 1997 annual report for National Realty says that the assets have been
appraised by a third party to be worth $345.9 million more than the debt.
That works out to $54.63 per share in asset value for a stock that even after
all that run-up is selling at only $23.25.

Now, however, someone has finally played a trick on Mr. Phillips' group,
so there may be, at last, a way for investors to profit from all those hidden
assets. There has been a lawsuit pending against the Phillips group since
1988 when they first rolled up those Southmark partnerships. Most of us thought
the judge would roll over and play dead, but now HE has sprung back to life.
At last a good guy in this story? Well, it's sort of beginning to look that
way. California's Judge Thomas M. Jenkins has just ruled that Phillips' plan
for running and winding up the affairs of National Realty is not fair. Several
lawyers involved think his ruling in this case will be unappealable. It now
looks very much as though Judge Jenkins will appoint a receiver to wind up
this long-running horror story. If that happens, a cut in the enormous management
fees to present market levels could quadruple the dividend paid. The remaining
$20 or so in hidden asset value could easily be realized in this hot real
estate market within two years or so, maybe less.

Like all ghostly stories this is still scary. There are still a few tricks
Phillips might play, and one never knows how much of the assets of the
partnership the judge may divert to take care of the former LPs that Phillips
bought out when prices were depressed. Nonetheless, my children, you might
want to consider putting a few of these shares in your Halloween treat bag.
They might turn sour, but it's a lot more likely they will ripen into something
very tasty indeed before Halloween of 1998.

And since you've been such good boys and girls, I'll offer you one more Halloween
treat. The Fool is about to offer a daily downloadable spreadsheet covering
some 250 real estate stocks. If you would be interested in receiving this
spreadsheet send me an email (TMF
Yorick). Sleep tight, now. I'll watch the fire and try to keep the real
estate Hobgoblins away.

Happy Halloween.

TMF Yorick

P.S . I would tell you kids a lot more about scary things Mr. Phillips' group
has done to investors, but it would keep you up far beyond your bedtime.
It's a long story, but if you do want to know more click here: The Long Scary
Story of Son of Southmark